The Informativeness Principle Without the First-Order Approach
Working Paper Author/Authors
Abstract
Holmström (1979) provides a condition for a signal to have positive value assuming the validity of the first-order approach. This paper extends Holmström's analysis to settings where the first-order approach may not hold. We provide a new condition for a signal to have positive value that takes non-local incentive constraints into account and holds generically. Our condition is the weakest condition possible in the absence of restrictions on the utility function.
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© Pierre Chaigneau, Alex Edmans, Daniel Gottlieb, 2014
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